Posts Tagged ‘Cost-shifting’

We put up our 1,000th post a little over a week ago. We’re now looking through everything we’ve posted, and are putting up “best of” lists in our most popular categories.

This is the sixth of our first-1,000 “best of” lists. We’ve already posted the Science Fiction, HumorMusicInterviews, and Addictions lists, and will shortly be putting up other “best ofs” in several other categories, including Anarchism, Atheism, Politics, Religion, Science, and Skepticism.

Best Economics Posts

Recap of Previous Posts in the Series

In Part I, we saw that the distribution of income and, especially, wealth in the U.S. is extremely inequitable, with the top 1% owning 42% of financial (nonhome) wealth, with the top .1% owning as much as the bottom 90% combined, and that the bottom 50% of the population owns essentially nothing. As well, since total wealth in the U.S. is currently $81.5 trillion, average (not median–which is half above, half below) per capita wealth comes to over a quarter of a million dollars. Yet distribution of wealth is so lopsided that most people have almost no net worth.

We also saw that American workers–who have one of the longest average work weeks in the world, 47 hours–have seen their real wages decline nearly 10% since 1973, while productivity per hour worked increased by, on average, over 1.75% per year during the same period; compounded, that works out to an over 80% increase in productivity. So, American working people are producing far more than we did four decades ago, and are being paid less. To maintain the same average standard of living as in 1973, we should (assuming a 40-hour work week then) only be working 22 hours per week, had wage increases kept pace with productivity.

In Part II, we saw that working and “middle class” people (an increasingly quaint concept) pay higher taxes than the top 1%. There are two primary reasons for this: 1) Capital gains income is taxed at a far lower rate (15%)  than a good majority of earned (through work) income (with a rate of 28% starting at $37,000); and 2) Other taxes (sales, property, social security, gas, “sin”) hit average people, who spend almost all of their income, far harder than those in the top income brackets, who don’t. It works out that a single worker earning $10 an hour pays taxes amounting to roughly 40% of his or her income, while a nonworker in the top .1% only pays about 30%.

Eliminate that 10% difference in tax rates, and the average worker would have 10% more income–or could work 10% fewer hours to maintain his or her standard of living. Adding that to the 18 hours of work per week that should have been eliminated over the last four decades, and it means that the average work week should now only be 18 hours.

In Part III, we saw that a huge amount of tax money is wasted. The U.S. spends as much on its military as the next eight to ten countries combined, (Estimates of China’s military spending vary, and at least three (maybe four or even five) times the amount of the next highest-spending country, China. Taking the highest estimate of China’s military spending, that means that if the U.S. matched China’s expenditures, it’s now wasting approximately $400 billion annually (out of an annual military budget of approximately $600 billion). That comes to $1200 for every man, woman and child in the country.

We also saw that the U.S. through its sky-high–by far the highest in the world–incarceration rate and the “war on drugs,” is wasting at least $50 billion per year (probably considerably more), and that this is not keeping us safe, with the U.S. having the highest murder rate and the fourth highest rape rate in the industrial world.

As well, we saw that the government gives tax breaks amounting to over $1.2 trillion annually, with almost all of the breaks going to corporations and the wealthy, and it also gives direct subsidies to them coming to tens of billions of dollars annually. This works out to total taxpayer subsidies to corporations and the wealthy of approximately $4,000 for every man, woman, and child in the country.

The Inefficiency of Capitalism

Then there’s the fact that capitalism is an inefficient economic system–if you judge efficiency by capitalism’s ability to meet human needs rather than its ability to funnel profits to a very small percentage of the population.

But just how is it inefficient?

In his nearly book-length 2003 pamphlet, The Inefficiency of Capitalism, Brian Oliver Shepherd listed 10 ways in which capitalism is inefficent:

  1. Product duplication
  2. Systemic unemployment
  3. Cost-shifting
  4. Waste of unsold goods
  5. Inherent inefficiencies of hierarchies
  6. Planned obsolescence
  7. Price gouging
  8. Creation of false desires (advertising/consumerism)
  9. Parasitic “jobs”
  10. Inefficient distribution patterns

Another significant one that Brian didn’t list is inefficient, wasteful development patterns.

We’ll look closely at what is probably the most important of these inefficiencies–systemic unemployment–and glance at some of the others, which are more difficult to quantify. Let’s look at those first.

Product duplication is very obvious–just go into a supermarket and look at the dozens of different varieties of toothpaste or breakfast cereals, or walk out your front door and look at the hundreds of different vehicle models on the streets. All of these products are the result of unnecessary duplication of effort. They all–at least those produced by different corporations–have their own supply chains, sometimes-idle factories, delivery chains, and marketing campaigns.

Cost-shifting, the shifting of costs from businesses to the public, is rampant. The most obvious example is climate change damage (rising sea levels, rising temperatures, droughts, etc.), which is caused by fossil fuel burning. Exxon, which funds climate change deniers, raked in $4.2 billion in profits in the second quarter alone this year, and $8.8 billion in the same quarter last year.  The eventual economic cost of climate change will almost certainly come to well up into the trillions, perhaps tens of trillions, over the coming decades–and all of that cost will be borne by the public.

Superfund cleanup is another example. According to the EPA, the costs of cleaning up contaminated sites will be roughly $350 billion over the coming decades. Virtually all of the contaminated sites were created by profit-making businesses, and all of the cost for cleaning up those sites will be borne by the public.

Unsold wasted goods. Huge amounts of unsold goods are wasted, simply thrown away in the U.S. and other developed countries. The most flagrant, and maddening, example of this is waste of edible food. A 2012 estimate in the Washington Post placed the amount of edible food wasted in the U.S. at 40% of the total, or $165 billion worth annually. The USDA reports that 30% to 40% is wasted.

Planned obsolescence is difficult to quantify, but very real. Going beyond such things as Apple cultists standing in line overnight to buy the newest must-have versions of their gadgets, you have such things as auto manufacturers deliberately making their vehicles very difficult for shade-tree mechanics to work on. One example of this is that they often make parts that require special tools to remove or install, and put parts in very inaccessible places (fuel pumps in fuel tanks, for instance–yes, they actually do this). An example from personal experience involves water pumps. Decades ago, I owned a 1951 Chevy pickup, and had to replace the water pump. It took about ten minutes. Back in the early ’90s, I owned a Plymouth for a short while and had to replace the water pump on it. Most of the bolts attaching the pump to the block were easy to access, but they had put one at the end of a tine that extended several inches up in under the timing chain–rather a synthetic rubber timing belt; they sometimes snapped, wrecking the engine in the process–making what should have been a short job into a multi-hour job (made all the worse by having to remove and then reinstall the radiator). There was absolutely no engineering reason for them to have done this. They did it solely to discourage do-it-yourself mechanics. And as cars get older, they require more and more work to maintain; if that work is difficult, owners are more likely to buy new models.

Parasitic jobs are a higher percentage of the total than people generally realize. We can define them as “jobs” that do nothing to produce goods or services that meet human needs. Let’s look at one of the most aggravating examples of such parasitism: lawyers. According to the ABA, there are 1.3 million lawyers in the country, and the average pay for lawyers is over $114 thousand a year. Then there are stock traders, stock brokers, and hedge fund managers who produce nothing, yet receive vast amounts of money, in a few cases over a billion dollars annually. The more mundane useless jobs, such as real estate agent, armaments-industry worker and  car salesman, often make substantially more than average working people doing necessary jobs. And even those doing outright harmful jobs, such as narcotics agents and prison guards are relatively well paid. In contrast, those doing the dirtiest, most necessary work–for example, farm workers, sanitation workers, elder care and health aides–are among the lowest paid. Under capitalism, parasites make the most money, and those doing the most necessary work make the least.

Advertising is another huge waste, given that it’s annoying, provides almost no real information, in many cases is designed to misinform, and in a great many others is designed to stimulate demand for unnecessary or harmful products (alcohol, tobacco, sodas, etc.). In the first quarter of 2015 alone, advertising spending came to an estimated $37.4 billion, which projects to $150 billion this year, or over $400 for every person in the country. This money could be better spent.

Finally, let’s consider the most quantifiable and arguably most important inefficiency of capitalism: systemic unemployment. “Full” employment is usually defined as a 5% unemployment rate, that is, 95% of those who want work have it. The current unemployment rate is 5.3%, which doesn’t sound too bad, but which vastly understates the problem. That 5.3% refers only to those currently working or actively seeking work, and doesn’t include those working part time who want full-time work but can’t find it, at least as many as are officially considered unemployed. Statistica places the current combined rate at 14.2%; the Bureau of Labor Statistics places it at 10.7%, including “discouraged workers.”

Since participation in the labor force is currently only 62.6% of working age adults, that means that a full 37.4% of the work force isn’t working. So, among those working full time, underemployed,  officially unemployed, and “discouraged,” the real unemployment/underemployment rate is at least 17% among those those working, looking for work, involuntarily working part time, or “discouraged.” As for the 37.4% of adults who don’t work, some retired early, some are disabled (estimates of the numbers of those too disabled to work vary, with 7% to 10% sometimes cited), some are stay-at-home parents doing childcare (work not officially classified as work), and some are upper middle class and wealthy people who choose not to work. Even if only a quarter of that 37.4% were able and had to look for work,  that would bring labor force participation up to 72%–with two out of seven, nearly 30% of those able to work, either unemployed or underemployed.

This is a huge waste of potentially useful labor. It means the nation is producing far less than it could; it means those of us doing useful work are carrying a disproportionate share of the work load; and it means that the huge “reserve army of the unemployed” holds down wages, which benefits only corporations and the wealthy–not those of us doing useful work.

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We’ll conclude this series later this week with a summary of the reasons why the work week is far too long.